Southwest Beltway 8 Submarket Update - CXRE Commercial

The Southwest Beltway 8 submarket currently has an 18.1% vacancy rate with projected vacancy dropping to 16% over the next 5 years. This was one of the highest rates in metro Houston and growth seems to have passed over this area. Southwest Beltway 8 has underperformed compared to similar submarkets due to its location, demographics, and being further away from the Energy Corridor. We see a slow path of growth for this submarket. Hopefully, vacancy rates will drop to around 14% by 2024, patience will certainly be key.

Leasing Opportunities in Southwest Beltway 8 Houston

Third Quarter 2019 in Southwest Beltway 8 saw negative 12-month absorption of -130,000 SF and a high vacancy rate of 18.1%. This submarket has had trouble attracting new tenants due to a limited supply of high-end office space and very few four and five-star buildings. We hope to see the vacancy rate drop by a couple of percentage points by 2024 but even then it would still be considered an underperforming submarket. Let’s take a look at some of the more active buildings leasing office space in the last 12 months.

Four- and Five-Star Buildings

  • American First Tower – 9999 Bellaire Boulevard leased 2,496 SF

Three-Star Buildings

  • Houston Technology Center – 5959 Corporate Drive leased 53,480 SF
  • 9896 Bissonnet Street – leased 18,161 SF
  • Westwood Green – 9494 Southwest Freeway leased 18,622 SF

Asking Rents in Southwest Beltway 8

South Beltway 8 Submarket Asking rents for office space in this market are some of the lowest in Houston averaging around $18.00/SF. There are multiple factors that contribute to this but a lack of high-quality product is the leading issue in Southwest Beltway 8. Rent growth has also been stagnant, coming in at -2.4% as of Third Quarter 2019 and vastly underperforming compared to other office submarkets.

Rent growth has been slow in Southwest Beltway 8, we hope to see a slight uptick over the next 5 years with moderate growth of 1-2% which would fall in place with the metro average. Tenants looking to lease office space could definitely benefit from the low rents but it might be hard to find quality space with amenities that are typically included in newer buildings.

Construction

Southwest Beltway 8 is currently at -36,000 SF of net deliveries since 2010 and has a limited pipeline since developers are more focused on surrounding submarkets. Over the last eight quarters there has been 7,930 SF of office space delivered. The largest delivery was in Third Quarter of 2017 with a 60,000 SF building at 8181 Southwest Freeway.

Since new inventory has been scarce this could help lower the high vacancy rate and improve this submarket in the coming years. 200,000 SF of space has been proposed over the next eight quarters. So, we will see how this affects Southwest Beltway 8 and its continued growth.

Recent Deliveries

  • Fondren Professional Building – 10610 Fondren Road delivered 7,930 SF

Proposed

  • Beechnut Street and West Sam Houston Parkway – 200,000 SF building to be completed in December 2021.

Sales Activity in Southwest Beltway 8

Southwest Beltway 8 had one large sale transaction so far this year. Hsu Realty Company purchased a 218,000 SF building located at 9800 Centre Parkway in April for a confidential price. Most deals that take place in this submarket are between local investors and fairly small with cap rates at 6.9% and an average sales price of $154/SF. Average vacancy rates at time of sale are sitting at 5.8%.

Below are some recent significant sales over the last 12 months.

  • Parkwood Circle Building – 7909 Parkwood Circle Drive sold for $32,803,363 ($167/SF)
  • West Belt Plaza West – 9724 Beechnut Street sold for $12,548,906 (167/SF)
  • West Belt Plaza East – 9720 Beechnut Street sold for $11,547,730 ($167/SF)
  • 11150 South Wilcrest Drive – sold for $2,826,250 ($63.00/SF)
  • 11511 North Garden Street – sold for $450,000 ($103/SF

Investment Opportunities in the Southwest Beltway

South Beltway 8 Submarket Overall, the Southwest Beltway 8 submarket has a lot of growth to make up for in the next couple of years. This could be a good market for single tenants and smaller companies looking to take advantage of lower rental rates especially if location and amenities are not a priority.

In addition, we see an opportunity for investors and developers in Southwest Beltway 8 from buying older generation space and making upgrades to building brand-new office buildings to attract tenants. We have a team of experienced brokers that can advise you on the best real estate strategy for your business and help you find space, contact CXRE today!

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